Attorneys at Streit & Su have been frequently asked to comment on the future of EB-5.  Although we are certainly not able to predict the future, we are noticing certain patterns that could give us a hint on what is likely to happen in the EB-5 world.

Increasingly Sophisticated Structure

Currently, the most common form of EB-5 investment is sponsored by a regional center with fundsflowing from anLPnewly formed by individual investors to a job creating entity.  Such structure is, in essence, very similar to that of a traditionalprivate equity (“PE”) fund.  Historically, as the PE business evolves, fund structure gradually becomes more sophisticated to meet the challenges.  We believe that EB-5 is likely to evolve in a similar way.

For example, the USCIS requires that EB-5 investment be “at risk.”  At Streit & Su, we often need to remind prospective investors that purchasing real estate itself does not qualify for EB-5 because the USCIS does not consider such investment as “at risk.”  Indeed, if the USCIS ever finds that your investment is in effect purchasing real estate, your petition will be denied.  On the other, we do understand why the idea of purchasing real estate is so tempting, because investors tend to have strong faith in the stability of U.S. real estate market.  Foreign investors, due to asymmetry of information, particularly want to invest in something concrete, something they can see, feel, and touch.

Such is the dilemma: investors want stability, while legislators want EB-5 investment to be a dynamic investment truly benefitting U.S. economy.  As a result, our attorneys are often challenged to come up with structures catering to both sides.  We believe that such challenges will ultimately drive up the sophistication of EB-5 fund structure.

Permanent Regional Center Program

Currently, the regional center program is a pilot program that was last extended to September 30, 2015.  EB-5 attorneys often find it amusing that a program, originally introduced in 1992, is still a “pilot” program two decades after.

On June 27, 2013, the Border Security, Economic Opportunity, and Immigration Modernization Act of 2013 was passed by the Senate 68-32, which called for a permanent authorization of the regional center program.  On March 6, 2014, Rep. Jared Polis (D-CO), in conjunction with Reps. Joe Garcia (D-FL), Matt Salmon (R-AZ) and Mark Amodei (R-NV), introduced the American Entrepreneurship and Investment Act of 2014, which, again, proposed the permanent authorization of the regional center program.

Although whether such proposed reforms will be signed into law remains to be unclear, we do see bipartisan efforts to build apermanent regional center program.  In a stakeholder meeting held on December 5, 2014, León Rodríguez, director of the USCIS, stated that just the filings in FY-2014 would represent over $5 billion in potential EB-5 investment. A majority of the $5 billion would besponsored by regional centers.  Suffice to say, we have reasons to believe that the regional center program will be permanently authorized.

Stricter Regulatory Environment

In the aftermath of SEC v. Marco A. Ramirez, et al, and SEC v. A Chicago Convention Center, et al, U.S. authorities are likely to tighten up the regulatory environment of EB-5 to deter securities fraud.  Indeed, the SEC has issued alerts that urged the investors to look out for hallmarks of securities fraud, including, but not limited to, unlicensed sellers, and unregistered investments.  Furthermore, attorneys familiar with U.S. regulatory environment should be no stranger to the concept of “regulatory overreaction.”  At this time no one is expecting any overreaction, yet EB-5 should have never been, is not, and will never be a “wild west.”

Despite the uncertainties clouding over how securities laws and regulations should be applied in the EB-5 context, entitiesinvolved in EB-5 should be concerned about compliance and regulatory risk management.

We believe the above communication may be of interest to our clients and friends of our firm. However, such communication is for general information only. It is not, neither is it intended to be, a comprehensive analysis of the matters presented and should not be relied upon as legal advice. Should you have a specific question, please contact an attorney at Streit & Su PLLC.